Economics

Retail investors are in love with dividends more than they should be with significant fan followings and discussion forums online dedicated to the worship of dividend stocks. Clearly, dividends are seen as important because public companies love to brag about how consistent their dividend payments have been and how much they’ve raised them. Dividends are beloved because they give investors the allure of safety. Retail investors feel that a dividend payment is secure which means the investment is secure. However, in the financial crisis, dividend stocks fell about the same amount as the S&P 500. To be clear, dividend payments…
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The Fed funds rate is a hotly debated topic because it’s the main policy tool the Fed uses. There is economic data which can be interpreted to support every argument. Furthermore, after the metrics are taken into account, the goals are subject to interpretation. Just because the core inflation rate goes above 2%, doesn’t mean the Fed needs to hike rates, as we have previously discussed. The Fed could determine that its mandate of creating stable prices is hit when the core inflation is 3%, as an example. We’ve seen the Fed ignore the data in 2017 because it felt…
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In the financial media, it’s easy to see what the economists and analysts think about the current economy because usually they propose more of the same when asked about the future. It’s simple to extend the current trend indefinitely, but that’s not always a good idea, nor is it realistic. Even during economic expansions, there are mid-cycle slowdowns. While a slowdown doesn’t mean a bear market is coming for the overall market, it could mean a correction is coming in at least a few sectors. Therefore, it should affect how you allocate capital.
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The purpose of this article is to objectively examine trade policy and its impact on the economy. While there will be discussion of government policy, our review is not negatively nor positively inclined towards any particular administration. During the presidential campaign trail, then Candidate Trump stated that he’d renegotiate trade deals to stop other countries from ripping America off. Following the election, for the first year of his presidency, it appeared there wouldn’t be any trade wars as promised. This belief existed because Trump met with Chinese President Xi Jinping last May in which he negotiated a deal to open…
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One of the biggest generational differences which causes a disconnect between baby boomers and millennials is student debt. Many baby boomers are confused why college graduates don’t immediately move out of their parents’ house like baby boomers did. The issue is that once a student graduates, they become debtors. It’s a vicious cycle which turns compound returns against borrowers. For example, say you graduate with $40,000 in debt and you owe a 4% interest rate for 15 years. While the federal government expects the loans to be paid back in 10 years, it takes the average Wisconsin graduate 19.7 years…
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Investors are trying to get a reading on where inflation will go in the next 12 months because it’s a key variable for forecasting asset prices and the Fed funds rate. As you can see from the chart below, the year over year core CPI will hit near 2.5% in late 2018 if the month over month increase is 0.16% in February and 0.19% going forward.
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We’re going to dedicate another article to re-discovering the relationship between the 10 year bond and the stock market. With bond yields skyrocketing in the 4th quarter of 2017 and the first 2 months of 2018, it’s more important now than ever to understand the relationship. The confusing aspect, which started during the correction in early February 2018, is that the financial media headlines blame yields going up for the stock market decline, but the yields and stocks often act in correlation. In a previous article, we discussed that historically when the 10 year bond yield gets to 5%, stocks…
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Some analysts speculated if the Fed would try to keep rates low to support the government’s spending binge. However, instead of worrying about the debt, the $400 billion spending plan and the tax cuts are being used as an excuse to raise interest rates and let the government bonds on the Fed’s balance sheet expire. At a conference on February 27th, which was right after Powell’s first Congressional testimony, Yellen and Bernanke were asked about the biggest risk factor facing the economy. Bernanke said geopolitical events and Yellen worries about how the Fed balances growth versus inflation. While these are…
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With the first stock market correction in over a year, having occurred in early February, there were many media narratives about what caused the selloff. We think it was driven by the unwind of the short VIX trade. Buying protection wasn’t considered important with the VIX at record lows in 2017. However, when nobody thinks there’s a need for protection, it’s probably a good idea to buy some especially since it’s cheap. Shorting the VIX is shorting protection. The stock market was like a car driving 80 miles per hour where the riders were betting against the need for air…
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We’ve discussed the price to income ratio of housing in a previous article. This gave us an idea of how expensive housing has become. We’ll discuss some of best points why real estate is too expensive and then provide the counterpoint explaining why housing isn’t in a bubble.
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In January, the ECB tapered its bond buying from €60 billion per month to €30 billion per month. Equally as important, the central bank is expected to stop its bond buying completely by September 2018. European economic growth has accelerated recently, but it’s unclear how much the economy was helped by the QE and how much it was helped by the global synchronized economic recovery. The ECB policymakers will, of course, take credit for the success. This is just like how Janet Yellen is praised for keeping the economy out of a recession as if she was the sole reason…
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In 1962, the first version of Spacewar! was completed. Technically, this wasn’t the first video game ever created, but it was probably the first one that really mattered, as it serves as the beginning of the long line of advances in video game technology that continues into the present day. The invention of the game is generally credited to Steve Russell, who was the primary programmer. But the development of the game was the product of a handful of programmers working with an early computer known as the PDP-1. The original version of the game employed two “ships” – really just shapes…
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There are a plethora of reasons why education in America is mediocre. We can argue that teacher unions care more about personal benefits than teaching kids, that the information taught in America is far less advanced than the information taught in other nations, or even that America is not fostering a culture where the youth even value education. Whatever argument you choose, we can all agree that America is inept at educating. But instead of rambling on and on about the status quo, real solutions should be formulated. It would be important to note that the US spends more than…
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There are many ways to measure market cycles and the business cycle, however economics is not an exact science. One of the methods that can be used alongside measuring of the yield curve is the output gap. The output gap is the difference between actual and potential economic production. It allows economists and investors to determine what point the economy is at in the business cycle. When the output is above potential, the economy starts to overheat, causing inflation. When output is below potential, the economy isn’t growing as fast as it could, possibly because of a recession. To make…
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Valuation is the method of determining what an asset is worth. The price, on any given day of a stock, is how the market is valuing that asset. Your ability to look at various metrics when coming up with a valuation will determine if you can do a better job than the market at determining what an asset is worth. If you can outwit the market, you make profits. If you can’t, you underperform the market or lose money. Some methods of stock valuation are the following: price to earnings (PE) multiple versus growth, earnings yield versus fixed income yields,…
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As with seemingly every election cycle, tax reform is a hot topic, as though a carrot that dangles in front of the horse. Whether you’re in favor of larger or smaller taxes, its a discussion that is important to have. The goal of this preliminary tax discussion is to separate the narrative from the reality. With President Trump’s election there has been discussion of getting rid of the interest tax deduction for mortgages, as well as the border adjusted tax. Both of these would be a tax on consumption which would negatively affect the consumer. However, despite the rhetoric, the key…
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‘This Congress is going to be the busiest Congress in decades — maybe ever.’’ With these words, President Donald Trump urged fellow Republicans in Congress to help him halt illegal immigration by supporting his plan to build a United States-Mexico border wall. But a wall that isn’t erected by the private land owners bordering Mexican land owners isn’t a wall. It’s government spending. And if government is spending, someone else is footing the bill. That someone is you and me.
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The election of President-elect Donald Trump last month has awakened, what some people are calling, the “animal spirits” of capitalism. Anyone with a 401k or money in the stock market could tell you that things are going very well at the moment. The election of President-elect Trump and conservative, pro-market Republican majorities in the House and Senate represents a turning of the page from eight years of growing tax burden, government spending, and red tape. The Trump Rally, as some pundits are calling it, has resulted in the Dow Jones Industrial Average jumping 1,600 points since 2016’s election day. Such…
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Would you like to know my secret to turning my environmentalist friends into stalwart defenders of the marketplace? The answer is simple: coal. You would be amazed by the reversal in rhetoric witnessed right before your eyes, typically accompanied by a big dose of schadenfreude aimed at Appalachian people. The “free market killed coal” adage apparently qualifies as ironic humor in leftist circles. Never mind the tens of thousands of families, hundreds of communities, a plethora of near-bankrupt school districts, and so many others left behind in the wreckage of coal’s decline. They’ll laugh as states who have endured generation…
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The latest jobs report is out for November 2016 and the media is in a frenzy over the fact that the unemployment rate has fallen to a nine year low at 4.6%. However, as anyone who has a passing familiarity with the voodoo science of statistics will tell you, numbers can be made to dance to any tune you wish and, contrary to popular opinion, they often lie. And while a 4.6% unemployment rate seems at face value to be great news for the economy, it is unwise to take anything from the government at face value and that holds…
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In his far-reaching effort, known as “A Better Way”, to define a coherent, conservative legislative agenda, Speaker of the House Paul Ryan brought together the talent and put in the time to chart a path forward in the War on Poverty. For too long, conservatives have allowed the War on Poverty to be waged by leftists, bureaucracy, and those whose favorite part of the Constitution is the taxing and spending clause. The product of these misguided technocrats couldn’t signal a more resounding defeat. They’ve waged a battle in which success was measured by inputs rather than outcomes. Rather than focusing…
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Venezuela’s current political crisis has drawn much attention worldwide. The shortages, increasing violence, skyrocketing inflation, and the increasing militarization of its economy are all fixtures of Venezuela’s current national disaster. Opposition movements have naturally arisen in response to Venezuela’s squalid state, with the Democratic Unity Roundtable (MUD) leading the charge against the current ruling class. Despite the unprecedented awareness of Venezuela’s delicate situation, considerable amounts of disinformation abound both in mainstream media and social media coverage of these events. This article seeks to dispel many of these myths and misconceptions that concern Venezuela and its political opposition. The Venezuelan Opposition is Attempting…
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The rise of Donald Trump’s candidacy has generated a strong degree of backlash among the chattering classes worldwide. No stranger to controversy himself, his campaign’s unconventional style has led various experts to draw parallels between Trump and the late Venezuelan President Hugo Chávez. While both Chávez and Trump never shied away from throwing verbal haymakers towards their opponents, the actions that these men have taken in their respective political careers could not be any further apart. The age-old axiom of “actions speak louder than words” is now more relevant than ever in this discussion. These comparisons are not only specious,…
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In recent times, Venezuela has been the object of many headlines across the globe that detail its current economic predicament. Once Latin America’s most stable country, Venezuela is now experiencing a historically unprecedented economic and social collapse. How did such a nation awash with bountiful oil reserves and numerous decades of democratic stability stoop to such levels of misery? The conventional narrative typically points to Hugo Chávez’s arrival to power in 1998 as the main catalyst of Venezuela’s economic decline. Quantitatively speaking, Chávez’s presidency was responsible for the largest economic downturn in the country’s history. Through an unprecedented number of…
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In a recent article of mine, I debunked the red herring of the “roads” argument that many modern socialists throw around. It turns out that lately this article has gotten some pretty lively responses from its critical readers. One such commenter was someone I might have expected to be on my side (politically speaking) as he was presumably a libertarian himself, but the road forked for us at economics. It seemed as if this gentleman was an adherent of the Austrian school (a.k.a. the fantasy football of economics), and he had a thing or two to say about my reasoning behind my aforementioned debunking.…
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The age of social media has given rise to an increasingly large group of people who believe that a couple sentences, or even just a few words posted on a picture constitute an effective argument. While in some ways, political and philosophical debate is healthier than ever before, the over reliance on simplistic arguments is creating a “meme world” where an asinine idea can be conveyed in few words and posted in mere seconds. Proper refutation, however; takes more than a few words. In the 140 character world of Twitter, these types of arguments exist almost exclusively. This tweet from…
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We are routinely being sold on this idea that the solution to poverty is more government power and more regulation. Rarely are any connections made when catastrophic events occur as a result of these policies. Instead of considering the alternative – freedom – they continue to look for government-created solutions when they are the ones who created the problems in the first place. Make no mistake, Venezuela’s economic turmoil is a consequence of the government’s socialist policies. The major tenant of socialism is that a governing power makes all the important decisions on behalf of those whom they claim to help. Socialism operates on the presumption…
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Although there is very little on which we agree, Marxists and socialists have provided me with some excellent philosophical discussions. One such person recently wrote this article in which he attempted to take to task the libertarian concept of freedom. The piece starts out well enough as he does a decent job describing how libertarians view the concept: “What the libertarians mean by freedom is that the government does not interfere in the lives of private citizens. If we were freed from government coercion, people would have a good life, because the free market would regulate our lives, and we…
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The Liberty Conservative is an online political magazine devoted to the vision of less government and more liberty in achieving true prosperity for all. We intend to accomplish this by informing and educating our readers on our core principles of free markets, limited government, traditional values, and personal freedom.

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